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Countries with very large current account surpluses like Germany and the Netherlands save too much and invest too little, risky when growth slows. Add to that negative yields, budget surpluses, the impotence of monetary policy and the eurozone adjustment burden and the case for fiscal stimulus becomes extraordinarily compelling. Luckily enough, there are signs policymakers […]

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Some argue that Paul Krugman has flip-flopped on deficit spending. Closer inspection reveals that there isn’t much in this, his supposed love for deficit spending has always been conditional on the state of the economy. One could appreciate Krugman’s underlying economic model, as this has been the best in making sense of the post-financial crisis […]

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Their argument is that in the current environment of near-zero interest rates, fiscal deficits are unusually cheap to finance and monetary policy is not going to move to offset much (if any) of the effects of fiscal policy on the economy. Under these conditions, it is indeed possible that austerity today may reduce future tax […]

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IMF: US budget cuts ‘ill-designed’ The International Monetary Fund (IMF) has urged the US to repeal the huge federal budget cuts introduced this year, denouncing them as “excessively rapid and ill-designed”. via BBC News – IMF: US budget cuts ‘ill-designed’.

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At heart, the Keynesian analysis is remarkably simple. The private sector suffered large losses in wealth due to the housing crash. As a result, it reduced borrowing and spending and increased savings (or were forced to do this by creditors). The problem is that on the level of the economy as a whole, where my […]

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